The trade war's taking its toll, but in a total oddity, it's not taking its toll where you would expect. That's why I am not as worried as others about the sales of the Apple 11 in China, as the new phones drop today. In fact, I am excited about the possibilities for Apple (AAPL) in the world's most populous market.
This trade war has produced anomaly after anomaly. We were told by the doomsayers that if the president put high tariffs on steel, such as the 25% duty slapped on to stop Chinese steel from wrecking the remaining part of our industry, it would cause pricing to skyrocket.
After an initial feint higher, though, pricing has collapsed. Some grades are appreciably lower than anyone thought. A lot of it is because there's a surfeit even of American steel. Some is because demand's weaker than expected. Still, the those who warned us of the surging inflation that would was about to hit our shores owe us an apology or at least some self-flagellation.
But the plummet in steel pricing doesn't hold a candle to the paradox of Chinese demand. Ever since the trade war started we have seen a fairly dramatic increase in Chinese demands for many American products. Consider the contrarian case of Procter & Gamble (PG) . On Thursday, I interviewed Procter's CEO, David Taylor at the Delivering Alpha conference and he talked about the home run his company's hitting in the PRC: "Take China: Several years ago we were minus 5 percent sale growth. The next year, plus one. The next year, plus 7. We just closed the year at plus 10."
That's remarkable. The secret: best products at a reasonable price. "Put the consumer at the heart of what you do, then good things happen," P&G's Taylor explained.
I think that's all well and good. It's obvious P&G is both taking share and growing organically. What's also clear, though, is that share is being taken, in part, from cheaper Chinese products.
Starbucks (SBUX) represents an international brand, but the thing's still based in Seattle. There had been a breakdown in Chinese sales not that long ago, but CEO Kevin Johnson's recently told me that business has been improving pretty rapidly in China and he intends to keep building stores to meet demand all over the country . There are way too few Starbucks in the PRC.
There's been times when we saw the equivalent of a state-sponsored boycott of Kentucky Fried Chicken. But in a quarter right smack in the middle of the tussle, Yum China delivered 4% comparable sales. Yes, the company had a lukewarm forecast but it's always been pretty conservative. The fact is that this extremely visible American brand has increasing, not decreasing, sales.
Lots of hedge funds were short Estee Lauder (EL) going into the quarter, betting there's no way Asian sales would hold up, especially because of the riots in Hong Kong.
Nope, not at all. China led the company's sales. There's a boycott that hasn't happened.
All of these results make me wary of the doomsayers for what's become an iPhone launch that's been written off in China already. The lessons of these other products tells me that if Apple prices the phone right-and I think it is priced for value-the numbers could be much higher, not lower.
My conclusion? There might be tremendous antipathy between the countries' governments, but it certainly doesn't extend to the Chinese people, who have stepped up their American buying just when you would expect a politically gendered collapse of demand.